ARTS WAY MANUFACTURING CO INC Income Taxes Disclosure

(14)	Income Taxes

 

Total income tax expense for the 2025 and 2024 fiscal years consists of the following:

 

		November 30, 2025				November 30, 2024
Current expense		$	22,815			$	11,389
Deferred expense			379,363				62,916
Total income tax expense			402,178				74,305
Income tax expense - discontinued operations			-				115,330
Income tax expense (benefit) - continuing operations		$	402,178			$	(41,025	)

 

The reconciliation of the statutory Federal income tax rate is as follows:

 

		November 30, 2025				November 30, 2024
Statutory federal income tax rate			21.0	%			21.0	%
State taxes (net of federal)			3.2				4.5
Reduction in estimated state tax rate (deferred tax asset change)			2.0				-
Permanent Differences and Other			1.8				4.8
			28.0	%			30.3	%

 

Tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) on November 30, 2025 and 2024 are presented as approximate amounts below:

 

		November 30
		2025				2024
Deferred tax assets
Accrued expenses		$	79,594			$	87,153
Inventory capitalization			57,115				142,471
NOL and tax credit carryforward			1,403,878				1,653,212
Asset reserves			568,372				591,025
Total deferred tax assets		$	2,108,959			$	2,473,861
Deferred tax liabilities
Property, plant, and equipment		$	(48,025	)		$	(33,564	)
Total deferred tax liabilities			(48,025	)			(33,564	)
Net deferred tax assets (liabilities)		$	2,060,934			$	2,440,297

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company's 2024 tax return included net operating losses (NOL) carryovers amounting to approximately $2,133,000 and tax credit carryforward amounting to approximately $109,000 for its U.S. operations that will expire on November 30, 2036, 2037, 2038, 2039 and 2040. The Company also carried over another $4,995,000 of net operating losses that can be carried forward indefinitely. Management expects to consume approximately $963,000 of NOLs for the 2025 tax year and believes that the Company will be able to utilize the remaining U.S. net operating losses and credits before their expiration.

 

One Big Beautiful Bill Act

 

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. Some notable changes through OBBBA: reinstates 100% bonus depreciation on qualified assets which has been expanded to include manufacturing buildings, restores a more favorable EBITDA-type calculation on business interest deduction, locks in many provisions of the Tax Cuts and Jobs Act and includes provisions favorable for farmers & ranchers. The Company thinks the bill is overall positive for the agriculture market but expects its impact on its consolidated financial statements to be minimal.